I’m attending a conference sponsored by IA Watch: Coping with Regulatory Change. These are my brief notes.
Anthony Kelly, Assistant Director, SEC’s Asset Management Unit, shared some of the activities of this part of the Securities and Exchange Commission.
For fees, the Unit is looking mis-allocation of private equity fees and expenses and whether the fees and expenses are properly disclosed. In the Cherokee case, the Unit found the fees and expenses for the fund manager for compliance should not be charged to the funds. In the Fenway case, the Unit felt the adviser was misleading its fund investors for charging related party consulting fees. Before that was the Blackstone case for mis-allocation.
Mr. Kelly encouraged self-reporting. There is a cooperation program and cooperation credit available. Not bringing an enforcement action is “extra-ordinary.”
He emphasized that the Unit is not targeting CCOs. It will defer to the good-faith determinations of the CCOs. It will bring action if the CCO is actively involved. It will bring actions against CCOs for hindering the exam or investigation. See the Wells Fargo case. The third area is the wholesale failure of the CCO in doing the job. (However, as he points out, there are two CCO liability cases in last year.)
Conflicts is a perennial area of focus for the Unit. It’s core to the fiduciary obligations of an investment adviser.
